In a trio of decisions issued on August 14, 2026, the Maryland Tax Court held that Maryland’s digital advertising gross revenues tax (the Tax) is invalid, ordering refunds to be paid to three technology companies that paid the Tax. The court determined that the Tax violates the Internet Tax Freedom Act (ITFA) as Maryland does not impose a similar tax on non-digital advertising services.
The court further concluded that the Tax violates the Dormant Commerce Clause and Due Process Clause by effectively discriminating against interstate commerce through its reliance on taxpayers’ global revenues in determining both taxability and applicable tax rates.1
The structure of the tax
In 2021, the Maryland General Assembly enacted the nation’s first tax on digital advertising services over the veto of then-Governor Larry Hogan.2 The Tax generally applies to businesses that derive at least $1 million of annual revenue from digital advertising services in Maryland and that have at least $100 million of global annual gross revenue.3 The Tax is imposed at graduated rates ranging from 2.5% to 10%, with the applicable rate determined by the taxpayer’s global annual gross revenues.4
The Tax applies to “digital advertising services,” defined as advertising services provided on a digital interface, including banner advertising, search engine advertising, interstitial advertising and similar advertising services.5 A digital interface broadly includes websites, portions of websites, applications and other software that users are able to access. The statute also contains several exemptions, including an exemption for digital advertising services provided on digital interfaces owned or operated by a broadcast entity or a news media entity.6
Notably, for the years at issue, Maryland did not impose a similar tax on non-digital advertising services or a sales tax on advertising services.
However, as the Tax applies specifically to advertising services delivered over the Internet, it is subject to ITFA’s prohibition against discriminatory taxes on electronic commerce. Originally enacted in 1998 and made permanent in 2016, ITFA prohibits states and political subdivisions from imposing discriminatory taxes on electronic commerce and generally includes a tax imposed on electronic commerce that is not generally imposed on transactions involving similar property, goods, services or information conducted through non-electronic means.7
Electronic commerce is broadly defined to include transactions conducted over the Internet involving the sale, lease, license, offer, or delivery of property, goods, services, or information.8
Prior case history
Almost immediately upon enactment, the Tax was challenged in both federal and state court. Trade associations pursued a federal challenge of the Tax under ITFA, the Commerce Clause, the Due Process Clause and the First Amendment. However, the U.S. Court of Appeals for the Fourth Circuit ultimately declined to rule on the merits of the suit, holding that the Tax Injunction Act applied and required taxpayers to pursue available state tax remedies first.9
Concurrently, in the state litigation, the Anne Arundel County Circuit Court struck down the tax on several constitutional and federal-law grounds, including ITFA, but the Maryland Supreme Court vacated that decision, concluding that the taxpayers had failed to exhaust Maryland’s administrative tax remedies and therefore the court lacked jurisdiction to decide the case.10 As both the federal and state appellate courts resolved these earlier challenges on procedural grounds, directing taxpayers to pursue Maryland’s administrative review process, the validity of the Tax would first be decided by the Maryland Tax Court.
Procedural background
Although the facts and procedural posture of the three cases vary slightly, the material facts and legal arguments are substantially similar. Three technology businesses each paid the Tax for the 2022 tax year and subsequently filed refund claims with the Maryland Comptroller (Comptroller). After the Comptroller denied the refund claims, each taxpayer appealed the denial to the Maryland Tax Court. In the ensuing litigation, cross-motions for summary judgment were filed. The taxpayers advanced several common arguments challenging the validity of the tax.
Specifically, the taxpayers argued that the Tax violates: (i) ITFA as it discriminates against electronic commerce; (ii) the Dormant Commerce Clause because it improperly burdens interstate commerce; and (iii) the Due Process Clause of the Fourteenth Amendment because it discriminates against out-of-state commerce. In addition, one of the taxpayers separately argued that the Tax violated the Foreign Commerce Clause and the First Amendment.
ITFA pre-emption
The Maryland Tax Court first considered whether the Tax violated ITFA. The primary issue before the court was whether digital advertising services are “similar” to traditional forms of advertising that are not subject to Maryland tax. Because Maryland generally did not impose a comparable tax on traditional advertising services, the dispute largely turned on whether digital advertising services are sufficiently similar to traditional advertising services for ITFA purposes.
The taxpayers argued that digital advertising is simply a modern method of delivering advertising messages. The court ultimately agreed and compared digital advertising services to traditional advertising services delivered through newspapers, magazines, direct mail, billboards, radio and broadcast television. Maryland instead argued that digital advertising represents a distinct category of advertising characterized by programmatic delivery, audience targeting, data analytics, automation and measurement capabilities unavailable in traditional advertising channels. Under Maryland’s approach, these operational differences rendered digital advertising services dissimilar from traditional advertising services and therefore outside the scope of ITFA’s discrimination prohibition.
Following extensive expert testimony and evidentiary submissions, the court adopted the taxpayers’ approach. The court found that although it was a close question, digital advertising services are similar to non-digital advertising services. According to the court, the relevant question in determining whether the two services are similar is not whether the underlying business models or operational processes differ, but whether the services achieve the same intended result, purpose, or objective.
Specifically, the court determined that both digital and traditional advertising share the same essential objective: influencing consumer behavior and encouraging the purchase of goods and services. Therefore, the court found that digital advertising services are not merely similar to traditional advertising services but are “even more aligned than similar.”
In reaching its conclusion, the court rejected Maryland’s reliance on distinctions related to targeting capabilities, automation, data analytics and other characteristics commonly associated with programmatic advertising. The court reasoned that such features relate to the mechanics of delivering advertising rather than the nature of the advertising service itself. The court further stated that ITFA focuses on electronic commerce transactions rather than the business structures, technologies, or operational processes that support those transactions. As a result, the existence of enhanced technological capabilities did not alter the court’s conclusion that digital advertising and traditional advertising constitute similar services.
Having determined that digital advertising services are similar to traditional advertising services, the court found that Maryland’s tax discriminated against electronic commerce because the state imposed the Tax on digital advertising while generally not imposing a comparable tax on non-digital advertising services. Accordingly, the court held that the tax was preempted by ITFA and granted summary judgment in favor of the taxpayers. The court also rejected Maryland’s arguments that ITFA does not provide a private right of action and that ITFA violates anti-commandeering principles under the theory provided by the U.S. Supreme Court in Murphy v. NCAA.11
Dormant commerce clause
While the court could have concluded its analysis at this point, the court then considered the additional grounds on which the taxpayers argued that the Tax could not be imposed. The court looked at whether the Tax satisfied the four-part test established by the U.S. Supreme Court in Complete Auto Transit, Inc. v. Brady, which requires that a tax: (i) be applied to an activity with a substantial nexus to the taxing state; (ii) be fairly apportioned; (iii) not discriminate against interstate commerce; and (iv) be fairly related to services provided by the taxing state.12
While the court determined that the Tax satisfied the substantial nexus requirement, it concluded that the Tax failed the fair apportionment, discrimination and fair relation prongs of the Complete Auto test.
Focusing primarily on the Tax’s reliance on global revenue thresholds, the court concluded that the Tax violated prongs (ii), (iii) and (iv) of Complete Auto. A fairly apportioned tax must be internally and externally consistent. External consistency requires that a state must only tax the portion of the revenues from interstate activity that reasonably reflects the in-state component of the activity being taxed. Specifically, both the applicability of the tax and the applicable tax rate depend on a taxpayer’s worldwide revenues rather than its Maryland activities.
According to the court, the graduated tax rate structure created an external consistency problem because increases in tax liability were attributable to activities occurring outside Maryland. As an illustration, the court noted that two taxpayers generating identical amounts of Maryland digital advertising revenue could face significantly different tax liabilities solely because one taxpayer earned substantially higher revenues outside Maryland. In the court’s view, this structure resulted in taxation that did not reasonably reflect the in-state component of the activity being taxed and therefore failed the fair apportionment requirement.13
The court also concluded that the Tax violated the third prong of Complete Auto by discriminating against interstate commerce. The court began by stating “[a] tax that unfairly apportions . . . is a form of discrimination against interstate commerce.”14 Here, the court found that the Tax’s practical effect was to burden large multistate and multinational businesses while favoring companies with limited operations outside Maryland.
Although the statute was facially neutral, the court emphasized that few, if any, Maryland-based businesses met the tax’s $100 million global revenue threshold. As a result, the court determined that the tax effectively targeted out-of-state businesses and conferred a competitive advantage upon local businesses. The court repeatedly characterized the statute as discriminating against “more globally robust companies” by linking both taxability and tax rates to activities occurring beyond Maryland’s borders.
Finally, the court concluded that the fourth prong of Complete Auto was violated as the Tax was not fairly related to services provided by Maryland. According to the court, higher tax liabilities resulting from larger worldwide revenue streams did not have any relationship to any additional benefits or services provided by the state. Based on these findings, the court held that the Tax violated the Dormant Commerce Clause and granted summary judgment in favor of the taxpayers.
Due process clause
The Maryland Tax Court next concluded that the Tax violated the Due Process Clause of the Fourteenth Amendment. Although the court acknowledged that the Due Process Clause and Dormant Commerce Clause analyses are distinct, it noted the significant overlap between the two doctrines in the state tax context. Under established precedent, due process requires both a minimal connection between the taxpayer and the taxing state and a rational relationship between the income attributed to the state and the taxpayer’s in-state activities.
The court determined that the Tax failed the latter requirement. In reaching this conclusion, the court relied heavily on the same concerns that supported its Dormant Commerce Clause analysis, particularly the discriminatory effect created by the statute’s use of global revenue thresholds.
While recognizing that states are not categorically prohibited from considering worldwide revenue in their tax systems, the court concluded that Maryland’s approach lacked a sufficient relationship between the tax imposed and the taxpayer’s Maryland activities. Because the amount of tax imposed was influenced substantially by out-of-state activities and because the structure disproportionately burdened non-Maryland businesses, the court held that the tax failed to maintain the rational relationship required by due process principles. Accordingly, the court granted summary judgment for the taxpayers on their Due Process Clause claims.
Foreign Commerce Clause and First Amendment challenges
In addition to the claims asserted by all three litigants, one of the taxpayers separately challenged the Tax under both the Foreign Commerce Clause and the First Amendment. The court rejected the Foreign Commerce Clause claim, concluding that the tax did not create a substantial risk of international multiple taxation and did not interfere with the federal government’s ability to speak with one voice in matters of foreign commerce.
However, the court agreed with the taxpayer’s First Amendment challenge. The court reasoned that the statutory exemptions for broadcast entities and news media entities required examination of the content and purpose of publications. The court further observed that key statutory terms, including “news” and “primarily,” were undefined and impermissibly vague. Because such vagueness raises heightened concerns in statutes affecting press activities, the court concluded that the tax violated the First Amendment.
Commentary
While the Maryland Tax Court’s rulings represent a significant victory for taxpayers challenging the Tax, the saga is far from over. Given the substantial revenue generated by the Tax, the potential refund exposure associated with previously paid tax liabilities, and Maryland’s continued interest in taxing the digital economy, an appeal by the Comptroller appears highly likely.
The most significant issue likely to be addressed on appeal is the court’s interpretation of the term “similar” under the ITFA. Neither the U.S. Supreme Court nor any federal appellate court has directly addressed the scope of the ITFA’s prohibition on discriminatory taxation of electronic commerce or the meaning of the term “similar” in this context. Consequently, limited judicial authority exists concerning how to compare electronic and non-electronic commerce for this purpose. This issue is particularly important given the Maryland Tax Court’s conclusion that digital advertising services are similar to traditional advertising services.
In reaching this conclusion, the court adopted a broad functional approach that focused principally on the ultimate objective of the advertising service. According to the court, both digital and traditional advertising seek to influence consumer behavior and encourage the purchase of goods and services. This approach arguably places less emphasis on the specific operational characteristics of the service being provided. In other areas of state taxation, including sales and use tax, taxability often depends not on the ultimate result of a transaction but on the manner in which the transaction is performed, delivered or structured.
Viewed from that perspective, modern digital advertising may differ significantly from traditional advertising channels. Programmatic advertising, behavioral targeting, automated bidding, algorithmic ad placement and user-level analytics are often central components of modern digital advertising ecosystems and may bear little resemblance to what the general public would perceive as the traditional advertising services, such as the purchase of advertising space in a newspaper, placement of a traditional billboard or a direct mail campaign.
However, this distinction between digital and traditional advertising has become increasingly difficult to maintain. Many of the services that Maryland identified as distinguishing digital advertising from traditional advertising, including behavioral targeting, audience segmentation, optimization and user-level analytics, are no longer limited to advertisements displayed on websites or mobile applications. Rather, similar services are increasingly utilized across a variety of advertising media, including connected television, addressable cable television, digital billboards and other forms of advertising traditionally viewed as non-digital.
This issue becomes particularly important when considering Maryland’s attempts to refine the scope of the Tax through Technical Bulletin 59 (TB 59).15 Notably, TB 59 was issued on July 11, 2025, which coincided with the hearings focusing on the technical aspects of the Tax that occurred in late July 2025. Through TB 59, Maryland sought to clarify the types of digital services to which the Tax would apply. Specifically, the Tax would apply to digital advertising services delivered on a digital interface and emphasized characteristics commonly associated with digital advertising.
For example, digital advertising included programmatic advertising, which, in turn, was defined as including the use of machine learning algorithms to deliver advertisements to audiences based on precise targeting data. However, neither the statute nor TB 59 attempted to extend the Tax to certain advertising services delivered through cable television and other non-internet-delivered channels (likely given the limitations of the statutory language). On this point, Maryland’s own expert testified that certain advertising delivered through cable television would not constitute digital advertising.
Although the court did not focus extensively on these developments, the testimony arguably highlights a broader issue: the advertising marketplace may have evolved beyond the traditional distinction between digital and non-digital advertising. If the same targeting, optimization, audience-segmentation and measurement services are increasingly performed across both online and traditional media channels, the relevant inquiry may no longer be whether an advertisement is delivered digitally, but whether the underlying advertising services are meaningfully different.
In that respect, the fact that targeted cable advertising employing many of the same characteristics as online advertising would not have been subject to the tax may provide another route to reaching the court’s conclusion that digital and non-digital advertising services are “similar” for ITFA purposes.
The court’s Dormant Commerce Clause analysis may prove equally significant. Although much attention will likely focus on the ITFA holding, the court repeatedly emphasized the practical operation of the tax and the effect of its worldwide gross revenue thresholds.
Rather than limiting its analysis to the statute’s facial language, the court examined how the tax operated in practice and concluded that the burden of the tax fell overwhelmingly on large multistate and multinational businesses. In doing so, the court relied on U.S. Supreme Court precedent, which emphasizes that a state tax should be evaluated in light of its practical effect rather than merely its formal structure.16
The court specifically found persuasive the fact that few, if any, Maryland-based businesses were likely to satisfy the Tax’s $100 million global revenue threshold. Consequently, the Tax effectively targeted businesses with substantial interstate and international operations.
These decisions are also being closely examined by other states that have recently enacted similar taxes targeting digital advertising services. For example, Utah recently enacted its “Targeted Advertising Tax,” which, upon first glance, appears to address some of the potential deficiencies of Maryland’s Tax.17 Unlike Maryland’s statute, which applies specifically to digital advertising services delivered on a digital interface, the Utah tax applies more broadly to “targeted advertising” rather than solely to digital advertising.18
This distinction may prove significant under the ITFA because the Maryland Tax Court’s holding was premised largely on the conclusion that Maryland taxed digital advertising while leaving similar non-digital advertising untaxed. Despite the Utah tax broadening the tax base, the statute retains several characteristics that may invite challenges similar to those raised against the Maryland tax.
In particular, the Utah tax applies only to taxpayers with at least $100 million of annual gross receipts attributable to targeted advertising and at least $1 million of Utah-source advertising revenue. Consequently, despite the broader tax base, the practical reach of the statute may remain limited to a relatively small number of large advertising and technology companies, which could invite Dormant Commerce Clause challenges.
Illinois presents a particularly interesting comparison. Like Maryland, Illinois has enacted a tax directed largely at targeted and programmatic advertising services. Although styled as a “Targeted Advertising Tax,” the Illinois framework in many respects resembles what Maryland attempted to accomplish through a combination of the Tax and Maryland’s TB 59.19 Unlike Maryland's statute, however, Illinois drafted the tax more broadly to encompass targeted advertising displayed not only on digital interfaces such as websites and applications, but also certain forms of video and audio advertising delivered through traditional media channels, including cable television and similar platforms.20
These distinctions could prove significant under an ITFA analysis. One of the central weaknesses identified by the Maryland Tax Court was that Maryland taxed digital advertising while generally exempting allegedly comparable non-digital advertising services. By extending its tax to certain advertising delivered through non-digital channels, Illinois may be better positioned to argue that it is taxing a broader class of targeted advertising services rather than electronic commerce alone.
Illinois also differs from both Maryland and Utah by not imposing a worldwide or total gross receipts threshold as a prerequisite for taxability, instead applying a $1 million Illinois-source revenue threshold and a single tax rate. Accordingly, Illinois may avoid some of the Dormant Commerce Clause concerns that arose from Maryland’s reliance on global gross revenue thresholds to determine both taxability and the applicable tax rate.
Whether these distinctions ultimately are sufficient to avoid ITFA preemption and the constitutional concerns identified by the Maryland Tax Court remains uncertain, but the Maryland decisions likely provide a roadmap for both taxpayers challenging future advertising taxes and legislators seeking to enact similar taxes.
1 Google LLC v. Comptroller, No. 23-DA-OO-0649, Maryland Tax Court, Aug. 14, 2026; Apple Inc. v. Comptroller, No. 23-DA-OO-0456, Maryland Tax Court, Aug. 14, 2026; Peacock TV, LLC v., No. 23-DA-OO-0654, Maryland Tax Court, Aug. 14, 2026.
2 H.B. 732, Laws 2021, adding MD. CODE ANN., TAX-GEN. §§ 7-5-101 – 7-5-301.
3 MD. CODE ANN., TAX-GEN §§ 7-5-103, 7-5-201.
4 MD. CODE ANN., TAX-GEN § 7-5-103.
5 Id. at § 7-5-101.
6 Id. For purposes of the exemption, a broadcast entity generally includes businesses engaged primarily in operating television or radio stations, while a news media entity includes businesses primarily engaged in newsgathering, reporting, or publishing news and commentary.
7 ITFA was originally enacted to only be effective for three years. See Pub. Law 105-277, Laws 1998. However, the ITFA was extended several times and became permanent in 2016. See H.R. 3086, Laws 2026. ITFA is enacted via a statutory note under 47 U.S.C. § 151.
8 See 47 U.S.C. § 151 note (Internet Tax Freedom Act).
9 Chamber of Commerce of United States v. Lierman, 151 F.4th 530 (4th Cir. 2025).
10 Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC v. Comptroller of the Treasury of Maryland, Maryland Supreme Court, No. SCM-REG-0032-2022, order issued May 9, 2023. For further discussion, see GT SALT Alert: Maryland tax on digital-ad services still in effect.
11 584 U.S. 453 (2018).
12 430 U.S. 274 (1977).
13 See Goldberg v. Sweet, 488 U.S. 252 (1989).
14 Quoting Armco v. Hardesty, 467 U.S. 638 (1984).
15 See also MD. REGS. CODE tit. 03, § 12.01 - 12.06.
16 Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175 (1995).
17 See S.B. 287, Laws 2026, adding UTAH CODE ANN. § 59-35-101 – 202.
18 See S.B. 287, Laws 2026, adding UTAH CODE ANN. § 59-35-101(1) (defining advertising to mean any “written, oral or graphical statement or representation”).
19 S.B. 3019, §§ 1-10, 1-15.
20 Id.
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